Cost Plus Inc.'s shares plunged 19 percent Friday after the specialty retailer posted a smaller second-quarter loss — but also warned that its third quarter would spawn larger losses.

Oakland-based Cost Plus reports that it lost $20.8 million on revenues of $183.4 million for its second quarter that ended Aug. 1. A year ago, Cost Plus lost $26.6 million. Revenues fell 13 percent.

But Cost Plus also anticipates it will lose $19 million to $24 million from its continuing operations, the retailer of furniture, rugs, baskets, ceramics, and other home decor, along with exotic food and beverages said.

That would compare with a loss of $21 million for the third quarter of 2008.

Cost Plus caters to the wants of customers, and less to what they really need, Stevan Buxbaum, executive vice president of Agoura Hills-based Buxbaum Group, a retail consultancy.

"People continue to tighten spending," Buxbaum said. "They are being discretionary and only buying based on need. Need, not want, has become the real arbiter of purchasing decisions."

Consumers have focused their shopping in grocery stores and discount retailers.

"People still need to eat, so they go to the grocery store, people need to replace something they use all the time, they go to the drug store or Wal-Mart, if people need clothes, they go to Ross," Buxbaum said.

That mind set might not change right away. Consumers amassed plenty of debt that been fueled

So since consumers they are spending their money on credit cards, they are less likely to spend in stores.

"The issue is the size of the pie," Buxbaum said. "No matter how many times you slice the pie, you still have the same sized pie."

Cost Plus share are particularly volatile lately.

Friday's huge decline in shares came on the heels of a 35 percent surge on Thursday, a day that produced no Cost Plus-related news during the trading session. Tuesday, the retailer's shares jumped 11 percent. On Aug. 11, Cost Plus fell 21 percent.

But the tough retail climate is the biggest factor that looms over Cost Plus.

"With unemployment projected to reach 10 percent by early next year and savings rates at record highs, our cautious outlook for fiscal 2009 remains unchanged," Barry Feld, Cost Plus chief executive officer, told analysts in discussing the earnings.

Cost Plus is using aggressive cost cuts to ward off the pressure of lower sales for big-ticket items. Among the reductions: Cost Plus has saved $8 million because it pressed landlords to renegotiate rental terms for some of its store leases.

"We've carefully positioned ourselves to emerge from the consumer recession as a healthier organization and with Cost Plus World Market's brand intact," Feld told analysts.